The ‘Cadillac Tax’ May Finally Be Repealed

The much-maligned “Cadillac tax,” which was supposed to be implemented as a tax on high-value group health plans with premiums above a certain level, may finally be seeing the end of the road.

Already the implementation of the tax, which was created by the passage of the Affordable Care Act, has been postponed twice. It was originally supposed to take effect in 2018 under the ACA. The tax was delayed two years by Congress in 2016, pushing implementation ahead to 2020. It was delayed again in 2018 and is currently scheduled to take effect in 2022.

But now the House has overwhelmingly voted to ditch it once and for all.

The Cadillac tax is an excise tax that applies to any group health policy that would cost more than $11,200 for an individual policy, or $30,150 for family coverage. Starting in 2022, a 40% tax would apply to any premium above those levels (so if an individual policy cost $12,000 a year, the tax would apply to the $800 excess over the $11,200 level).

Although the insurance company would have to pay the tax, it is widely believed that insurers would pass it on to the employer.

Widespread distaste for the tax

The tax was maligned by both employers and labor unions, many of which receive generous benefits packages that would have been subject to the tax. Labor disliked it because they felt that employers would cut benefits to avoid paying it or pass the tax on to employees. Employers disliked the tax because, well, it’s another tax – and a hefty one at that.

But supporters of the ACA said the tax was necessary to pay for the law’s nearly $1 trillion cost and help stem the use of what was seen as potentially unnecessary care.

While there is widespread support for repealing the tax, not everyone is on board. A group of economists and health experts wrote a letter to the Senate on July 29 in which they argued that the tax “will help curtail the growth of private health insurance premiums by encouraging employers to limit the costs of plans to the tax-free amount.”

The letter also pointed out that repealing the tax “would add directly to the federal budget deficit, an estimated $197 billion over the next decade, according to the Joint Committee on Taxation.”

This summer, the House of Representatives voted 419 to 6 to repeal the tax. Currently, a Senate companion bill has 61 co-sponsors, but the legislation has not yet come up for debate.

That said, most observers expect that the bill will soon be put up for a vote, meaning that the Cadillac tax will likely be sent to Cadillac ranch – having never seen the light of day.

Get an Early Start on Open Enrollment

As open enrollment is right around the corner, now is the time to make a plan to maximize employee enrollment and help your staff select the health plans that best suit them.

You’ll also need to make sure that you comply with the Affordable Care Act if it applies to your organization, as well as other laws and regulations.

Here are some pointers to make open enrollment fruitful for both your staff and your organization.

Review what you did last year

Review the results of last year’s enrollment efforts to make sure the process and the perks remain relevant and useful to workers.

Were the various approaches and communication channels you used effective, and did you receive any feedback about the process, either good or bad?

Start early with notifications

You should give your employees at least a month’s notice before open enrollment, and provide them with the materials they will need to make an informed decision.

This includes the various health plans that you are offering your staff for next year.

Encourage them to read the information and come to your human resources point person with questions.

Help in sorting through plans

You should be able to help them figure out which plan features fit their needs, and how much the plans will cost them out of their paycheck. Use technology to your advantage, particularly any registration portal that your plan provider offers. Provide a single landing page for all enrollment applications.

Also, hold meetings on the plans and put notices in your staff’s paycheck envelopes.

Plan materials

Communicate to your staff any changes to a health plan’s benefits for the next plan year through an updated summary plan description or a summary of material modifications.

Confirm that their open enrollment materials contain certain required participant notices, when applicable – such as the summary of benefits and coverage.

Check grandfathered status

A grandfathered plan is one that was in existence when the ACA was enacted on March 23, 2010, and is thus exempt from some of the law’s requirements.

If you have a grandfathered plan, talk to us to confirm whether it will maintain its grandfathered status for the next plan year. If it is, you must notify your employees of the plan status. If it’s not, you need to confirm with us that your plan comports with the ACA in terms of benefits offered.

ACA affordability standard

Under the ACA’s employer shared responsibility rules, applicable large employers must offer “affordable” plans, based on a percentage of the employee’s household income. For plan years that begin on or after Jan. 1 of next year, the affordability percentage is 9.86% of household income. At least one of your plans must meet this threshold.

Get spouses involved

Benefits enrollment is a family affair, so getting spouses involved is critical. You should encourage your employees to share the health plan information with their spouses, so they can make informed decisions on their health insurance together.

Also, encourage any spouses who have questions to schedule an appointment to get questions answered.

Small Employers Can Reimburse for Medicare Part B, D Premiums

As the workforce ages and many employers want to keep on baby-boomer staff who have the experience and institutional knowledge that is irreplaceable, one issue that always comes up is how to handle health insurance.

Once your older workers reach the age of eligibility for Medicare, under current law you can help them pay for Part B and D premiums with a Medicare Premium Reimbursement Arrangement. These types of arrangements became legal after legislation was signed into law in 2013 to help employers provide benefits to their Medicare-eligible staff.

But the issue surfaced again recently when the Trump administration came out with new guidance for health reimbursement arrangements that paves the way for employers to set up HRAs to reimburse staff for health premiums in their personal (not company group) health plans.

Anybody who is about to turn 65 has a six-month period to sign up for basic Medicare, but if they want additional coverage they can pay for Medicare supplemental coverage such as Parts B and D.

Part B covers two types of services:

Medically necessary services: Services or supplies that are needed to diagnose or treat your medical condition and that meet accepted standards of medical practice.

Preventive services: Health care to prevent illness (like the flu) or detect it at an early stage, when treatment is most likely to work best.

Part D, meanwhile, covers prescription drug costs.

The dilemma for employers has often been whether to keep the Medicare-eligible employee on the company health plan or cut them free on Medicare.

Smaller employers – those with 20 full-time-equivalent employees – have the option to open a Medicare Premium Reimbursement Arrangement for those employees if they are coming off a group health plan and into Medicare.

For small employers, it’s legal to set up an arrangement like that, as long as doing so is at the employee’s discretion. Employers are not allowed to push an employee into a Medicare Premium Reimbursement Arrangement in order to get them off the company’s health plan.

The good news for employers is that they often can reimburse their employees in full for Part B and D, as well as Medicare Supplement, and still pay less than they would pay in group employee premiums alone. 

On top of that, the employee gets a lower deductible and overall out-of-pocket experience with less, if any, premium contribution.  

What you need to know

Here’s what you should know if you’re considering one of these arrangements:

A Medicare reimbursement arrangement is one where the employer reimburses some or all of Medicare part B or D premiums for employees, as long as the employer’s payment plan is integrated with the group’s health plan.

To be integrated with the group health plan:

  • The employer must offer a minimum-value group health plan,
  • The employee must be enrolled in Medicare Parts A and B,
  • The plan must only available to employees enrolled in Medicare Parts A and B, or D, and
  • The reimbursement is limited to Medicare Parts B or D, including Medigap premiums.

Note: Certain employers are subject to Medicare Secondary Payer rules that prohibit incentives to the Medicare-eligible population.

Workers Getting Squeezed by Higher Health Plan Costs

While health insurance premiums aren’t going up as much as they used to, both employers and their workers are still struggling with higher health care costs.

According to the “2018 Health and Voluntary Workplace Benefits Survey,” published by the Employee Benefit Research Institute together with Greenwald & Associates, roughly half of all workers experienced an out-of-pocket cost increase in their workplace health insurance plans.

That’s roughly the same percentage as in 2017, but lower than the 61% who saw cost increases passed on to them from their employers in 2014.

And employees are feeling the pinch: About 28% of all workers affected by reductions in employee contributions to health care plans have decreased their own contributions to retirement plans such as IRAs, 401(k)s, 403(b)s and 457 plans.

Nearly half have cut back on other savings as well, to cover their rising share of health care costs.

The troubles don’t end there, though: About 25% of respondents reported they had trouble paying for basic necessities like shelter, rent and heat, and 36% reported difficulty with paying other bills.

About 27% told researchers they had already used up all or most of their savings, while about one-third have increased their level of credit card debt. Thirty percent have delayed retirement, and 21% have been forced to drop other insurance coverage. Twelve percent have taken a withdrawal or loan from a retirement plan.

The increased out-of-pocket costs on workers seem to be having some effect on consumer behavior as well, as more individuals are taking steps to control overall costs. For example, 73% are trying to control health care costs by taking better care of themselves.

One-quarter of respondents said they had not skipped prescription drugs to save money, while half reported delaying going to the doctor.

Employees like their plans

That said, half of workers surveyed expressed satisfaction with their own company health plans.

But price remains a sore spot: Only 17% of respondents said they were extremely satisfied or very satisfied with the cost of their health insurance plan, while just 15% reported satisfaction with the cost of health care services excluded by their plans.

However, only 12% reported that they were unsatisfied with their own health plan.

The takeaway

While workers are generally happy with the plans currently on offer from employers, they are anxious about what the future may hold for them and their families.

While nearly half of workers surveyed said they were very confident or extremely confident that they could get needed treatments today, only about one in three expressed confidence about being able to get needed medical care over the next 20 years.

For employers, that means providing better education and working with employees to provide them with specific voluntary benefits like long-term care insurance in case they suddenly have a medical emergency that will keep them laid up for some time.

You can also work with us to see where you can save money and pass those savings on to your employees, while at the same time improving their benefits package. If you are concerned about what employees are feeling, call us and we can go over your current benefits package to see where you can make improvements.